The Future of Shared Branching
Spring is just around the corner and with it comes change, new ideas and fresh starts. It serves as the perfect point in time to discuss strategies that will usher in new growth for the organization. In the credit union world, shared branching has always been a unique feature which allowed members access to a greater number of branches and ATMs by linking otherwise independent credit unions. This, in turn, has enabled credit unions to compete with financial institutions that have a larger branch footprint.
The latest Filene Research Institute Report noted that by 2025 shared branching will be fully integrated to include nearly all credit unions. This will allow credit unions to advertise a nationwide branch network and allow them to compete on the availability of this convenience. Today, the CO-OP Shared Branching represents the biggest shared branching partnership with 1,850 credit unions and 6,000 branches. Credit unions in this network will have a nationwide branch footprint to compete with larger banks. However, 13% of credit union executives surveyed in the Filene Report indicated that they plan to close branches in the next three to five years. In the branches that will remain open, they plan to downsize employees and offer more self-help kiosks, video conferencing and remote teller assistance. 80% of those surveyed agreed the branch of the future will also be smaller.
The Filene Report also noted that consolidations among credit unions and community banks will increase as the number of credit unions will continue to decline by 150 to 250 per year, citing a decrease in profits. As the number of credit unions and community banks decreases, larger banks continue to grow. These larger banks have used digital channel expansion as part of their growth strategy to attract Millennials and Generation Z. Credit unions recognize that they must have a blended digital and physical delivery strategy to compete. In fact, the shared branching network will need to meet both the needs of both the traditional branch user and the user who utilizes a blend of digital and physical delivery channels.
In 2021 and beyond, credit unions will need to assess and prioritize their investment in technology to meet the shifting requirements of shared branching and the continual evolution of their digital delivery channel.
The Filene Research Study cited earlier indicates that branches in some form will always remain relevant for those members who enjoy the physical transaction experience. However, as we move into 2021, the digital banking channel is now more crucial than ever to serve the majority of the credit union members. As we move forward in this decade, the digital channel will become the primary service channel, seeing exponential growth due to the service channel preferences of the younger generations. And while physical locations have been traditionally the channel for new member growth, we are beginning to see digital account opening claiming the top spot for new members and accounts.
The possibility of nationwide shared branching across all credit unions creates an economically advantageous model where credit unions can offer a vast branch footprint without many of the expenses tied to building a proprietary branch. Those expense savings can then be allocated into the expansion of the digital channel and marketing related activities. Though the overall number of branches may decline, the ability of the shared branching network to meet the needs of branch-bound member creates a “win-win” situation for the credit union and the member. The member receives the service they expect and the credit union enjoys economies of scale cost savings that can be reallocated for use in their specific strategic plan – which likely involves expansion of capabilities in the digital channel.